The pandemic has changed the work landscape dramatically, and for many companies—as many as 70% according to a recent study—the massive transition to remote and hybrid work is here to stay. Remote work has many benefits for both employees and employers, but these benefits come with some major compliance requirements. With remote work policies varying from state to state, navigating key issues like tax compliance, workers compensation, payroll compliance, and insurance coverage can be complicated—especially when employees are working remotely in different states than the company’s headquarters location.
For companies with employees working remotely out of state, it will be important to stay up to date with state and local regulations. Key considerations include:
Typically, under the “physical presence” rule, employees pay taxes to the state in which work is actually performed. For example, if your office is located in State A, but you have an employee who works remotely in State B, you would be required to withhold state taxes in State B.
However, this rule varies from state to state, and even when the physical presence rule applies, there can be exceptions. Determining compliance when your employees travel to various job sites, or have a hybrid work schedule, can be even more complex. Additionally, some states have created reciprocity agreements for remote workers in neighboring states.
In addition to tax withholding rules, different states have varying sick leave policies, wage and hour laws, and requirements for unemployment and other benefits that may impact your remote workforce.
Tax Nexus Compliance
Having a “Tax Nexus”—doing business in multiple states—can also complicate matters. In some cases, having remote, out-of-state workers can contribute to this, and may mean that your business may be subject to different sales tax, income tax, and other tax regulations.
Having out-of-state remote workers may mean that your business is required to carry unemployment insurance and register with the state unemployment office in additional states. Similarly, most states require that businesses provide workers compensation coverage. Failure to comply with state insurance coverage laws may result in penalties for non-compliance.
These are just a few of the key items to consider if you have a remote workforce in multiple states. Navigating these compliance issues can be complex, and your CPA is the best person to help you determine which issues apply to your business. If you have questions about maintaining compliance with a remote workforce, leave a comment below, or feel free to contact me directly. I’m happy to help!